David Grant, an MBA student, wants to open Caribbean Internet Café (CIC) in Kingston, Jamaica after he graduates. He thought this was a good business opportunity as Jamaica had reasonable internet users but low internet accessibility. As he was opening the first internet café, he would have a first mover advantage. During his vacation, he estimated the start-up costs, fixed costs and variable costs of operating CIC. Being a former employee at Jamaica Telecommunications Limited (JTL), he approached JTL to invest in his business. JTL proposed to invest $500,000 equity and provide $1,250,000 loan for 10% interest. Grant, now, has to determine the profitability of the proposed business and decide to proceed with the venture or not.
· Identification of Start-up cost, Fixed Cost and Variable Cost
· Fixed Cost
· Variable Cost per Customer
· Calculation of Contribution Margin
· Breakeven Analysis
1. What managerial issues should David Grant consider before starting the Caribbean Internet Café?
2. Define the fixed, variable and start-up costs in this case.
3. What will be the costs for the very first customer?
4. What is the contribution margin per customer?
5. How many customer visits will CIC need in order for the café to break-even in the first year?
6. How many customer visits will CIC need in order for the café to break-even in year two? Should Grant proceed with the venture?
7. Should Grant proceed with the venture?